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Strategies & Market Trends : Hedge Funds -- Ignore unavailable to you. Want to Upgrade?

To: Marty Rubin who wrote (81)	1/2/2001 6:30:08 PM
From: Knighty Tin	Read Replies (1) \| Respond to of 120

Marty, Most investors define excessive debt as the amount other investors or companies not in their portfolio have. <g> My feeling is that debt becomes excessive when it influences your actions. The most obvious example would be a margin call where you sell something you would really like to keep. Or, for a company, where they do not make a strategic move because it would impact their debt ratings. Those are micro definitions. On a macro basis, it is when the number of those micro conditions exist so as to impact business and markets negatively. I agree with Buffett somewhat on the risk question. We have to remember that he still does diversify somewhat and does not place all his bets in any one industry or any one firm. I would also agree that Gillette and Coke have less risk, as businesses, than nearly all computer cos., though I'm not as certain about retailers. I doubt if they have much less risk than Walmart. Where I disagree with Buffett, and where I think he disagreed with his mentor, Ben Graham, is that there is no price where great cos. like Coke and Gillette become overpriced, because of their "enterprise value." There are valuation levels where even great cos. are no longer worth buying and I think we have found those for Coke and Gillette in recent years. There will also be a time when they are dirt cheap again and you are getting their enterprise value for a song. But Warren has far too many shares to trade out at overpriced and buy back in at underpriced, so he has to play the role of long term holder or strategic unwinder. Since he has to say that they are great cos. longer term, he has to hold them when they are overpriced. And that is a restriction the rest of us do not have. He is 100% right about the uselessness of beta and alpha players. The fact is, beta and alpha are based upon historical stats and solid analysis is based upon discounting probable future events. Also, the concept of "measuring risk" is a bit silly. Does anyone really think that CMGI is less risky than Merck? Not now and they wouldn't have thought so if CMGI had existed in the 1920s or 1870s, long before beta popped out of Bill Sharpe's head.